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Move over Sydney & Melbourne, it's Brisbane's time to shine

Posted on 24 July 2019

Source - Australian Property Journal

BRISBANE will lead the nation for price growth over the next three years, with a forecast 20% rise in house and 14% in apartment prices outpacing all capital cities as Australia's residential market recovers from the downturn.

According to BIS Oxford Economics' Residential Property Prospects 2019 to 2022 report, despite being on the brink of the bottom, the market will have to wait for any "meaningful recovery".

Reductions in interest rates and the Australian Prudential Regulation Authority easing of constraints on lenders will provide some drivers of demand, however, banks are expected remain more conservative in their lending policies than they were prior to the APRA conditions being put in place, while new dwelling completions have peaked in 2018/19 and the high supply has taken the steam out of rental growth.

BIS Oxford Economics associate director and study author, Angie Zigomanis, said these factors are expected to continue to contain investor demand and in turn keep a lid on prices despite recent (and expected further) reductions in interest rates.

"The reductions in interest rates and easing in lending policy are expected to see residential markets stabilise in the latter half of 2019 and some price growth begin to come through in 2020. However, any price increases are likely to be muted, with high levels of supply continuing to weigh on the market."

New dwelling completions exceeded 200,000 in each of the past four years, and are expected to have peaked at a record of just under 227,000 in 2018/19, well above the underlying demand for new dwellings of around 195,000 per annum in the same period, which itself is also a record.

Most state markets are estimated to be in oversupply, with some at best being close to balance. Weak wages growth and a decline in new dwelling construction will drag on the broader economy, impacting demand. Economic growth acceleration is not expected until 2020/21.

New dwelling commencement are tipped to drop to a low of 163,000 dwellings by 2020/21, which Zigomanis said will "sow the seeds of the next cyclical upturn".

Population growth will remain at a high 400,000 per annum over the next three years, underpinned by net overseas migration inflows, and new supply will fall below underlying demand. This will put upwards pressure on prices begin to rise by 2020/21 and accelerate by 2021/22 as growth in the economy gathers pace.

The units market will continue to face more challenges than the detached housing market, particularly with the higher rate of new apartment construction and a pullback from investors weighting more of the oversupply towards the apartment market.

BIS Oxford Economics has forecast house price growth across most is forecast to barely pass inflation over the next three years, although prices are expected to accelerate across most capital cities by 2021/22 as the current downturn in supply hits home.

The greatest upside to house prices will emerge in Brisbane, although this will not be evident until for another year. While net interstate migration into Queensland has increased, there remains a dwelling oversupply and economic recovery as not yet taken off. Forecast house price growth of 20% to June 2022 will largely occur through the latter part of the next three years, while apartment prices will rise 14%.

Moderate price rises are expected in Canberra and Adelaide. Adelaide is experiencing "goldilocks" conditions, which BIS Oxford Economics says includes "no excessive population growth, not too excessive supply, and a relatively affordable market". House prices will rise 11% over the next three years, and units 6%.

Conversely, the nation's capital will see record new dwelling completions over 2019/20, a strong economy, solid population increases and affordable house prices in a high-income economy will keep dwelling values rising, with around 10% expected for both houses and units.

In the major markets of Sydney and Melbourne, prices will still be below their respective peaks of June 2017 and December 2017 by June 2022.

Heightened investor demand and through the upturn fuelled prices in each city, as well as record levels of new dwelling supply, particularly in the apartments sector.

"Although the dwelling deficiency in both New South Wales and Victoria has been significantly eroded, the sharp falls in construction will see the balance tip toward a tightening market by the end of 2020/21," Zigomanis said.

"This will place upward pressure on prices, but will be mitigated by the higher interest rates for investors and stricter lending policies being applied to borrowers across the board, which suggest that the earlier prices at the peak cannot be sustained in the current low income growth and conservative lending environment."

Sydney is expected to see house prices increase by 6% in the three years to June 2022, and units by 1%, and Melbourne's respective markets by 7% and 4%.

Excess stock, low population growth, and weak economic and employment growth continue to challenges Perth and Darwin, which have seen large price falls throughout the mining downturn. That excess stock may be absorbed by 2021/22, and both cities are will see house prices increase by 7% and units by 8% over the next three years.

Meanwhile, Hobart is expected to slow down after a period of being the strongest-performing market.

"Affordability has steadily become more challenging and is now at levels where interest rates were previously significantly higher. Rising supply will also mitigate some of the price pressures and only limited price growth is expected to 2022," Zigomanis said.

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